Physician investors are finding little comfort in the familiar adage that healthcare is recession-proof. It seems 2009 might be the year that proves that theory false.
As with other industries feeling the pinch of an economy in a downward spiral, physician-owned businesses are scrambling to shore up declining revenue and make tough decisions to prepare for an uncertain, if not grim, year ahead.
Some physicians who invested in their own practices, surgery centers, hospitals or other related businesses say they can weather the storm with careful budgeting, but others see 2009 as the year when those on the margins might fold. I think the economic pressures next year (2009) are likely to accelerate the trend weve already seen of physicians selling to hospitals, said William Jessee, president and chief executive officer of the Medical Group Management Association. A lot of it is doctors saying the economics of running a practice have become so difficult that I just want out.
Data from MGMAs annual Cost Survey report bear this out. The number of participants whose practices are hospital-owned has risen 2% to 3% per year during the past four years, Jessee said. Certainly, I think well see more of that in 2009 because the economic situation will be worse, he says. And if current trends continuea big if, to be suresome 60% of physicians will be in hospital-owned practices within 10 years, he said. While the participants in the MGMA cost survey are different from year to year, in 2003, 18.9% of the 1,231 practices that responded were owned by a hospital. In 2008, 35.5% of 1,470 respondents were hospital-owned, according to MGMA data.
Sarah Holt, administrator for the Cape Girardeau (Mo.) Surgical Clinic, a medical group of six general surgeons, said the group practice has put the brakes on plans to hire another general surgeon and instead plans to cover its growing workload with midlevel providers such as physician assistants. Were not going to really know today how deep its going to go, so what we can do today is take all protection measures, Holt said. These include holding off on new equipment, physicians and staff.
The practice is also trying to improve its billing efficiency by turning patients over to collection agencies more quickly. We have to make people understand that we are serious about collecting our money, Holt said.
Holt said that without question there will be practices that crash and burn in 2009. These are likely to be the ones that have not gotten their houses in order by now. Even with all of the precautions the Cape Girardeau physicians are taking, Holt expects the practices revenue and profitability to decline in 2009, simply because it will be more difficult to collect coinsurance from patients who dont have the funds to pay.
Philip Rhoades, the CEO of a 12-physician orthopedic practice in Pawtucket, R.I., said members of his practice are wondering how bad things will get. Every year we as administrators are asked to do more with less. Every time we do more with less, were wondering whether weve gotten to the bottom, he said. This year has put a whole new perspective on where the bottom might be.
Rhoades said the idea that healthcare is immune to economic downturns is a myth. Like Holt, he is concerned that high annual deductibles coupled with widespread layoffs will create a perfect storm that might make it increasingly difficult to collect payments from patients. Rhoades said he believes that after eight years in which his practice saw 15% revenue growth, there will be none to speak of in 2009. To plan for this, he has eliminated two positions this past year and put a freeze on raises and performance bonuses.
The prospects for physicians who own ambulatory surgery centers, hospitals and imaging centers do not look much brighter. In fact, an unfavorable and uncertain reimbursement environment may make their 2009 even more turbulent, some physician investors say.
Ophthalmologist David George is the medical director of Physicians Outpatient Surgery Center, an ambulatory surgery center in Belpre, Ohio. He and a couple of other ophthalmologists opened the ASC in 1999 to gain greater control over their surgical environment. What seemed like a great idea at the time, leading to more-efficient and specialized medical care and average annual profit growth of about 10% over the past five years, is no longer financially a sure thing.
The CMS pays ASCs roughly 60% of what hospitals receive for the same Medicare-covered services, down from roughly 80% several years ago. There are definitely more concerns than there are opportunities right now, George said.